Qualcomm Incorporated

2018 Vault Rankings

About Qualcomm Incorporated

Cell phone makers, wireless carriers, and governments worldwide
call on QUALCOMM to engineer a quality conversation. The company
pioneered the commercialization of the code-division multiple
access (CDMA) technology used in digital wireless communications
equipment and satellite ground stations mainly in North America. It
generates most of its sales through the development and marketing
of semiconductor chips such as its Snapdragon line and system
software based on CDMA and other technologies. Its biggest
customers have been suppliers to mobile phone makers Samsung and
Apple. In 2018, QUALCOMM ended its $47 billion bid to buy NXP
Semiconductors after the Chinese goverment failed to approve the
deal. Also in 2018, Broadcom halted its bid to buy QUALCOMM because
of US goverment resistance to the deal.

Operations

While CDMA is QUALCOMM's flagship technology, it has makes
products based on Orthogonal Frequency Division Multiple Access
(OFDMA), which allows multiple access on the same channel, and
Wideband Code Division Multiple Access (WCDMA), designed to ease
the transmission of multimedia content.

QUALCOMM dials in 65% of its revenue from customers based in
China (including Hong Kong), while customers based in South Korea
supply about 15% of revenue.

Sales and Marketing

A good portion of QUALCOMM's products have gone into phones made
by Apple Inc. (and its supplier Hon Hai Precision) and Samsung
Electronics making them the company's biggest customers. Other
significant customers are GuangDong OPPO Mobile Telecommunications
Corp. Ltd. and Vivo Communication Technology Co.

Financial Performance

QUALCOMM's financials have stumbled since their peak in 2014
when the company earned nearly $8 billion on about $25 billion in
sales. In 2017 (ended September), revenue hit about $22 billion,
down 1% from 2016, and profit plummeted 57% to $2.5 billion in 2017
from 2016.

Revenue for the QCT segment rose in 2017 from 2016 from sales of
Mobile Station Modem chips and RF, power management, and wireless
connectivity circuits. Sales to Apple declined in 2017 as the
iPhone maker shifted some of its chip business to Intel. A dispute
with Apple and another licensee of QUALCOMM technology reduced
revenue from the QTL segment in 2017.

Fines QUALCOMM paid to regulators in South Korea and Taiwan for
violating trade rules helped more than halve the company's net
income to $2.5 million in 2017 from about $5.7 in 2016.

Cash provided by operations fell to $4.7 billion in 2017 from
$7.4 billion in 2016 because of cash used to settle fines levied by
regulators in South Korea and Taiwan, as well as changes in working
capital related to an increase in accounts receivable and
inventories.

Strategy

It seems QUALCOMM spent more time in the courtroom and boardroom
in 2017 than in the lab and factory. The company's proposed
acquisition of NXP has dragged on more than a year, slowed by
regulatory review and tepid response from NXP shareholders. While
that deal has simmered, QUALCOMM was the target of a takeover bid
by rival Broadcom. QUALCOMM turned the $103 billion offer down
flat. But instead of going away, Broadcom put up a board of
directors slate that shareholders are to vote on at QUALCOMM's
annual meeting in March 2018. Before that could happen, however,
the US government scuttled Broadcom's takeover attempt, citing
national security concerns.

That's the boardroom. In the courtroom, QUALCOMM and Apple have
traded suits and countersuits over licensing deals. Apple shifted
some of the business for communications chips in its iPhones to
Intel and a dispute arose over who owns what inside the phone.
Those arguments look to continue indefinitely.

Those activities somewhat obscure what could be a lucrative
future for QUALCOMM with the advent of 5G wireless networks. The
company has worked to develop 5G technology for about a decade and
the toil is nearing payoff. The next generation of wireless
networking has promise of providing faster communication with less
latency, unleashing a host of new and powerful applications. On the
list is car-to-car communication involved in self-driving cars. NXP
and its strong automotive business is a key building block for
QUALCOMM in that area.

The first 5G networks could launch in 2018 with more rolling out
over the next several years. If it plays out like previous wireless
generations, it means big business for QUALCOMM.

Mergers and Acquisitions

QUALCOMM gave up on its proposed purchase of NXP Semiconductors
when the Chinese government failed to OK the deal. The deal had
gained approval from regulators around the world, but Chinese
authorities failed to act. Chinese resistance was attributed to
trade tensions with the US. QUALCOMM had been interested in NXP's
line of chips for automotive, internet of things, and networking
and security applications. QUALCOMM said it would buy back $30
billion worth of its shares in the wake of the deal's termination.
It also owed NXP a $2 billion termination fee.

QUALCOMM and TDK formed a joint venture in 2017 to provide chips
for mobile devices and internet of things applications. The entity,
called RF360 Holdings, combines QUALCOMM's chip expertise with that
of TDK in filters. Application areas are mobile devices,
automotive, and drones. The ownership of the joint venture is split
51% by QUALCOMM and 49% by TDK.

In August 2015, QUALCOMM completed the acquisition of CSR, a
UK-based maker of multifunction computer chips, for about $2.5
billion. CSR makes semiconductors for the auto, consumer, voice,
and music market segments. The acquisition provides QUALCOMM with
CSR's products, channels, and customers in burgeoning markets of
the internet of things (the idea that billions of devices can be
connected to the internet) and automotive infotainment.